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True/False: A firm's market value is also known as its enterprise value.

True/False: A firm's market value is also known as its enterprise value.

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Answer #1

False.

Market value is the total equity value of a company. It can be arrived at multipling the total outstanding shares*price each share. For example, if a company has 5 million shares outstanding and each share price is $50. Then the market value is $250 million.

Enterprise value = Market value of equity+market value of any preferred stock+value of the total debt (including bank debt and bonds)+minority interest (minority shareholders) -cash & cash equivalents. For example if Comapny A want to acquire Company B, he has to pay the equity and debt holders and he can use the cash to pay them. This is the rationale behind it.

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